10-Q


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
ý  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2016

¨  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number 001-09148
 
THE BRINK’S COMPANY
 
 
(Exact name of registrant as specified in its charter)
 
Virginia
 
54-1317776
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
1801 Bayberry Court, Richmond, Virginia 23226-8100
(Address of principal executive offices) (Zip Code)
(804) 289-9600
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes  ý No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes  ý  No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
(Check one):  Large Accelerated Filer  ý  Accelerated Filer  ¨  Non-Accelerated Filer  ¨  Smaller Reporting Company  ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes  ¨  No  ý
As of April 28, 2016, 49,327,547 shares of $1 par value common stock were outstanding.

1


Part I - Financial Information
Item 1.  Financial Statements
THE BRINK’S COMPANY
and subsidiaries

Consolidated Balance Sheets
(Unaudited)
(In millions)
March 31, 2016
 
December 31, 2015
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
186.8

 
198.3

Accounts receivable, net
503.1

 
478.1

Prepaid expenses and other
125.3

 
101.3

Total current assets
815.2

 
777.7

 
 
 
 
Property and equipment, net
552.0

 
549.0

Goodwill
192.8

 
185.3

Other intangibles
29.3

 
28.5

Deferred income taxes
327.7

 
329.8

Other
72.8

 
76.4

 
 
 
 
Total assets
$
1,989.8

 
1,946.7

 
 
 
 
LIABILITIES AND EQUITY
 

 
 

 
 
 
 
Current liabilities:
 

 
 

Short-term borrowings
$
50.7

 
29.1

Current maturities of long-term debt
39.0

 
43.3

Accounts payable
133.0

 
155.3

Accrued liabilities
397.9

 
414.1

Total current liabilities
620.6

 
641.8

 
 
 
 
Long-term debt
404.9

 
358.1

Accrued pension costs
217.5

 
219.4

Retirement benefits other than pensions
258.7

 
259.2

Deferred income taxes
8.1

 
8.1

Other
130.0

 
129.5

Total liabilities
1,639.8

 
1,616.1

 
 
 
 
Contingent liabilities (notes 3, 4, 11 and 12)


 


 
 
 
 
Equity:
 

 
 

The Brink's Company ("Brink's") shareholders:
 

 
 

Common stock
49.2

 
48.9

Capital in excess of par value
599.0

 
599.6

Retained earnings
553.4

 
561.3

Accumulated other comprehensive loss
(867.5
)
 
(891.9
)
Brink’s shareholders
334.1

 
317.9

 
 
 
 
Noncontrolling interests
15.9

 
12.7

 
 
 
 
Total equity
350.0

 
330.6

 
 
 
 
Total liabilities and equity
$
1,989.8

 
1,946.7

See accompanying notes to consolidated financial statements.

2


THE BRINK’S COMPANY
and subsidiaries
 
Consolidated Statements of Operations
(Unaudited)
 
Three Months 
 Ended March 31,
(In millions, except for per share amounts)
2016
 
2015
 
 
 
 
Revenues
$
721.8

 
776.1

 
 
 
 
Costs and expenses:
 
 
 
Cost of revenues
597.0

 
629.1

Selling, general and administrative expenses
110.3

 
112.3

Total costs and expenses
707.3

 
741.4

Other operating expense
(0.7
)
 
(21.8
)
 
 
 
 
Operating profit
13.8

 
12.9

 
 
 
 
Interest expense
(4.9
)
 
(4.9
)
Interest and other income
—

 
0.4

Income from continuing operations before tax
8.9

 
8.4

Provision for income taxes
9.4

 
15.5

 
 
 
 
Loss from continuing operations
(0.5
)
 
(7.1
)
 
 
 
 
Loss from discontinued operations, net of tax
—

 
(2.4
)
 
 
 
 
Net loss
(0.5
)
 
(9.5
)
Less net income (loss) attributable to noncontrolling interests
2.6

 
(6.5
)
 
 
 
 
Net loss attributable to Brink’s
(3.1
)
 
(3.0
)
 
 
 
 
Amounts attributable to Brink’s
 
 
 
Continuing operations
(3.1
)
 
(0.6
)
Discontinued operations
—

 
(2.4
)
 
 
 
 
Net loss attributable to Brink’s
$
(3.1
)
 
(3.0
)
 
 
 
 
Loss per share attributable to Brink’s common shareholders(a):
 
 
 
Basic:
 
 
 
Continuing operations
$
(0.06
)
 
(0.01
)
Discontinued operations
—

 
(0.05
)
Net loss
$
(0.06
)
 
(0.06
)
 
 
 
 
Diluted:
 
 
 
Continuing operations
$
(0.06
)
 
(0.01
)
Discontinued operations
—

 
(0.05
)
Net loss
$
(0.06
)
 
(0.06
)
 
 
 
 
Weighted-average shares
 
 
 
Basic
49.5

 
49.1

Diluted
49.5

 
49.1

 
 
 
 
Cash dividends paid per common share
$
0.10

 
0.10

(a)   Amounts may not add due to rounding.
See accompanying notes to consolidated financial statements.


3


THE BRINK’S COMPANY
and subsidiaries
 
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
 
Three Months 
 Ended March 31,
(In millions)
2016
 
2015
 
 
 
 
Net loss
$
(0.5
)
 
(9.5
)
 
 
 
 
Benefit plan adjustments:
 

 
 

Benefit plan experience gains
11.7

 
14.2

Benefit plan prior service cost
(0.4
)
 
(3.0
)
Total benefit plan adjustments
11.3

 
11.2

 
 
 
 
Foreign currency translation adjustments
17.8

 
(50.4
)
Unrealized net gains on available-for-sale securities
0.2

 
—

Losses on cash flow hedges
(0.3
)
 
—

Other comprehensive income (loss) before tax
29.0

 
(39.2
)
Provision for income taxes
3.8

 
4.0

 
 
 
 
Other comprehensive income (loss)
25.2

 
(43.2
)
 
 
 
 
Comprehensive income (loss)
24.7

 
(52.7
)
Less comprehensive income (loss) attributable to noncontrolling interests
3.4

 
(7.9
)
 
 
 
 
Comprehensive income (loss) attributable to Brink's
$
21.3

 
(44.8
)
See accompanying notes to consolidated financial statements.


4


THE BRINK’S COMPANY
and subsidiaries
 
Consolidated Statement of Equity

Three Months ended March 31, 2016
(Unaudited)
 
Attributable to Brink’s
 
 
 
 
(In millions)
Shares
 
Common
Stock
 
Capital
in Excess
of Par
Value
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Attributable
to
Noncontrolling
Interests
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of December 31, 2015
48.9

 
$
48.9

 
599.6

 
561.3

 
(891.9
)
 
12.7

 
330.6

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
—

 
—

 
—

 
(3.1
)
 
—

 
2.6

 
(0.5
)
Other comprehensive income
—

 
—

 
—

 
—

 
24.4

 
0.8

 
25.2

Dividends to:
 

 
 

 
 

 
 

 
 

 
 

 
 

Brink’s common shareholders ($0.10 per share)
—

 
—

 
—

 
(4.9
)
 
—

 
—

 
(4.9
)
Noncontrolling interests
—

 
—

 
—

 
—

 
—

 
(0.2
)
 
(0.2
)
Share-based compensation:
 

 
 

 
 

 
 

 
 

 
 

 
 

Stock awards and options:
 

 
 

 
 

 
 

 
 

 
 

 
 

Compensation expense
—

 
—

 
2.8

 
—

 
—

 
—

 
2.8

Consideration from exercise of stock options
—

 
—

 
0.1

 
—

 
—

 
—

 
0.1

Other share-based benefit programs
0.3

 
0.3

 
(3.5
)
 
0.1

 
—

 
—

 
(3.1
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of March 31, 2016
49.2

 
$
49.2

 
599.0

 
553.4

 
(867.5
)
 
15.9

 
350.0

See accompanying notes to consolidated financial statements
 

5


THE BRINK’S COMPANY
and subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
 
Three Months 
 Ended March 31,
(In millions)
2016
 
2015
Cash flows from operating activities:
 
 
 
Net loss
$
(0.5
)
 
(9.5
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Loss from discontinued operations, net of tax
—

 
2.4

Depreciation and amortization
32.2

 
36.7

Share-based compensation expense
2.8

 
5.2

Deferred income taxes
—

 
(4.6
)
Gains and losses:
 
 
 
Property and other assets
—

 
(0.2
)
Business acquisitions and dispositions
(0.1
)
 
—

Other impairment losses
0.5

 
1.1

Retirement benefit funding (more) less than expense:
 
 
 
Pension
3.2

 
(0.7
)
Other than pension
3.2

 
2.4

Remeasurement losses due to Venezuela currency devaluation
2.8

 
18.0

Other operating
(0.6
)
 
0.9

Changes in operating assets and liabilities, net of effects of acquisitions:
 
 
 
Accounts receivable and income taxes receivable
(24.2
)
 
(16.8
)
Accounts payable, income taxes payable and accrued liabilities
(27.5
)
 
(47.7
)
Customer obligations
(18.5
)
 
1.5

Prepaid and other current assets
(13.3
)
 
(14.8
)
Other
2.2

 
4.7

Discontinued operations
—

 
(2.0
)
Net cash used by operating activities
(37.8
)
 
(23.4
)
 
 
 
 
Cash flows from investing activities:
 

 
 

Capital expenditures
(20.8
)
 
(14.3
)
Available-for-sale securities:
 
 
 
Purchases
(5.8
)
 
(0.1
)
Sales
2.3

 
3.5

Cash proceeds from sale of property, equipment and investments
0.2

 
0.2

Other
—

 
1.4

Discontinued operations
—

 
1.9

Net cash used by investing activities
(24.1
)
 
(7.4
)
 
 
 
 
Cash flows from financing activities:
 

 
 

Borrowings (repayments) of debt:
 

 
 

Short-term debt
20.5

 
(6.6
)
Long-term revolving credit facilities:
 
 
 
Borrowings
187.6

 
177.9

Repayments
(136.8
)
 
(187.7
)
Other long-term debt:
 

 
 

Borrowings
1.6

 
82.0

Repayments
(16.0
)
 
(17.9
)
Debt financing costs
—

 
(1.9
)
Dividends to:
 

 
 

Shareholders of Brink’s
(4.9
)
 
(4.9
)
Noncontrolling interests in subsidiaries
(0.2
)
 
(0.2
)
Proceeds from exercise of stock options
0.1

 
0.1

Minimum tax withholdings associated with share-based compensation
(4.2
)
 
(0.3
)
Other
0.8

 
0.1

Net cash provided by financing activities
48.5

 
40.6

Effect of exchange rate changes on cash
1.9

 
(17.2
)
Cash and cash equivalents:
 

 
 

Decrease
(11.5
)
 
(7.4
)
Balance at beginning of period
198.3

 
176.2

Balance at end of period
$
186.8

 
168.8

See accompanying notes to consolidated financial statements

6


THE BRINK’S COMPANY
and subsidiaries

Notes to Consolidated Financial Statements
(Unaudited)

Note 1 - Basis of presentation

The Brink’s Company (along with its subsidiaries, “Brink’s” or “we”) has nine operating segments:
•
Each of the five countries within Largest 5 Markets (U.S., France, Mexico, Brazil and Canada)
•
Each of the three regions within Global Markets (Latin America, Europe, Middle East and Africa ("EMEA") and Asia)
•
Payment Services

Our unaudited interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial reporting and applicable quarterly reporting regulations of the Securities and Exchange Commission (the “SEC”).  Accordingly, the unaudited consolidated financial statements do not include all of the information and notes required by GAAP for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.  Operating results for interim periods are not necessarily indicative of the results that may be expected for the full year.  These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes in our Annual Report on Form 10-K for the year ended December 31, 2015.

We have made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements. Actual results could differ materially from these estimates.  The most significant estimates are related to goodwill and other long-lived assets, pension and other retirement benefit obligations, legal contingencies, business divestitures and deferred tax assets.

The consolidated financial statements include the accounts of Brink’s and the subsidiaries it controls.  Control is determined based on ownership rights or, when applicable, based on whether we are considered to be the primary beneficiary of a variable interest entity.  Our interest in 20% to 50% owned companies that are not controlled are accounted for using the equity method, provided we sufficiently influence the management of the investee.  Other investments are accounted for as cost-method investments or as available-for-sale.  All significant intercompany accounts and transactions have been eliminated in consolidation.

Foreign Currency Translation
Our consolidated financial statements are reported in U.S. dollars.  Our foreign subsidiaries maintain their records primarily in the currency of the country in which they operate.

The method of translating local currency financial information into U.S. dollars depends on whether the economy in which our foreign subsidiary operates has been designated as highly inflationary or not.  Economies with an officially reported three-year cumulative inflation rate of more than 100% are considered highly inflationary.

Assets and liabilities of foreign subsidiaries in non-highly inflationary economies are translated into U.S. dollars using rates of exchange at the balance sheet date.  Translation adjustments are recorded in other comprehensive income (loss).  Revenues and expenses are translated at rates of exchange in effect during the year.  Transaction gains and losses are recorded in earnings.

Foreign subsidiaries that operate in highly inflationary countries use the U.S. dollar as their functional currency.  Local-currency monetary assets and liabilities are remeasured into U.S. dollars using rates of exchange as of each balance sheet date, with remeasurement adjustments and other transaction gains and losses recognized in earnings.  Non-monetary assets and liabilities do not fluctuate with changes in local currency exchange rates to the dollar.

Venezuela
The economy in Venezuela has had significant inflation in the last several years.  We consolidate our Venezuelan results using our accounting policy for subsidiaries operating in highly inflationary economies.

Since 2003, the Venezuelan government has controlled the exchange of local currency into other currencies, including the U.S. dollar, and has required that currency exchanges be made at official rates established by the government instead of allowing open markets to determine currency rates.  Different official rates existed for different industries and purposes and the government does not approve all requests to convert bolivars to other currencies.

As a result of the restrictions on currency exchange, we have in the past been unable to obtain sufficient U.S. dollars to purchase certain imported supplies and fixed assets to fully operate our business in Venezuela. Consequently, we have occasionally purchased more expensive, bolivar-denominated supplies and fixed assets. Furthermore, there is a risk that official currency exchange mechanisms will be discontinued or will not be accessible when needed in the future, which may prevent us from repatriating dividends or obtaining dollars to operate our Venezuelan operations.

7


Remeasurement rates during 2015. In March 2014, the government initiated an exchange mechanism known as SICAD II with conversions subject to specific eligibility requirements.  Transactions were reported in a range of 49 to 52 bolivars to the U.S. dollar.  From March 2014 through December 31, 2014, we received approval to obtain a total of $1.2 million (at a weighted average exchange rate of 51 bolivars to the dollar) through the SICAD II mechanism. Through February 11, 2015, we used the SICAD II rates to remeasure our bolivar-denominated monetary assets and liabilities into U.S. dollars and to translate our revenue and expenses.  Effective February 12, 2015, the government replaced the SICAD II process with a new process, known locally as SIMADI and we began to use the SIMADI rate to remeasure bolivar-denominated monetary assets and liabilities and to translate our revenue and expenses. As a result, we recognized an $18.0 million net remeasurement loss in the first quarter of 2015. The after-tax effect of this loss attributable to noncontrolling interests was $5.6 million for the first quarter of 2015. The SIMADI rates published from mid-February 2015 through the end of 2015 ranged from 170 to 200 bolivars to the U.S. dollar. We received only minimal U.S. dollars through this exchange mechanism.

Remeasurement rates during 2016.   In the first quarter of 2016, the Venezuelan government announced that they would replace the SIMADI exchange mechanism with the DICOM exchange mechanism and would allow the DICOM exchange mechanism rate to float freely. The DICOM rate at March 31, 2016 was 273 bolivars to the dollar. We recognized a $2.8 million net remeasurement loss in the first three months of 2016.  However, the after-tax effect in the current period was income attributable to noncontrolling interest of $0.5 million.

Remeasuring our Venezuelan results using the respective DICOM or SIMADI rates has had the following effects on our reported results:

•
Brink’s Venezuela became a much smaller component of Brink’s consolidated revenues and operating profit.
•
Brink’s Venezuela’s profit margin percentage declined as the historical U.S. dollar non-monetary assets were not remeasured to a lower U.S. dollar basis but instead retained a historical higher basis which was used for depreciation and other expense attribution. Our non-monetary assets were $15.3 million at March 31, 2016, and $13.5 million at December 31, 2015.
•
Our investment in our Venezuelan operations on an equity-method basis declined.  Our investment was $24.5 million at March 31, 2016, which included $15.1 million in net payables to other Brink's affiliates and $26.0 million at December 31, 2015, which included $18.7 million in net payables to other Brink's affiliates.
•
Our bolivar-denominated monetary net assets included in our consolidated balance sheets declined.  Our bolivar-denominated net monetary assets were $4.2 million (including $10.1 million of cash and cash equivalents) at March 31, 2016 versus $9.5 million (including $6.2 million of cash and cash equivalents) at December 31, 2015.
•
Accumulated other comprehensive losses attributable to Brink’s shareholders related to Brink’s Venezuela were $112.9 million at March 31, 2016 and $113.0 million at December 31, 2015.

Impairment of Long-lived Assets in Venezuela
During the second quarter of 2015, Brink's elected to evaluate and pursue strategic options for the Venezuelan business. Our consideration of these strategic options is ongoing and, during the second quarter of 2015, required us to perform an impairment review of the carrying values of our Venezuelan long-lived assets in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 360, Property, Plant and Equipment. Our asset impairment analysis included management's best estimate of associated cash flows relating to the long-lived assets and included fair value assumptions that reflect conditions that exist in a volatile economic environment. Future events or actions relative to our Venezuelan business may result in further adjustments.

As a result of our impairment analysis, we recognized a $34.5 million impairment charge in the second quarter of 2015. We recognized an additional $0.8 million in impairment charges in the third quarter of 2015. After these impairment charges, the carrying value of the long-lived assets of our Venezuelan operations is $6.5 million at March 31, 2016.  We have not reclassified any of the $112.9 million of accumulated other comprehensive losses attributable to Brink’s shareholders related to Brink’s Venezuela into earnings.

Ireland
Effective March 1, 2016, results from Ireland are excluded from the non-GAAP results due to the company's decision to exit the majority of its operations in the country, which had revenue of approximately $15 million in 2015. Charges excluded from non-GAAP results include $4.2 million in severance costs and an additional $1.7 million in operating and other exit costs. Brink's expects to recognize additional operating and disposition-related costs of approximately $5 million to $10 million later this year. International shipments to and from Ireland will continue to be provided through Brink’s Global Services.

Argentina
We use the official exchange rate to translate the Brink's Argentina balance sheet and income statement. At March 31, 2016, the official exchange rate was 14.7 local pesos to the U.S. dollar.

The government in Argentina had previously imposed limits on the exchange of Argentine pesos into U.S. dollars. As a result, we elected in the past and may continue in the future to repatriate cash from Argentina using markets to convert Argentine pesos into U.S. dollars if U.S. dollars are not readily available. Prior to the December 2015 devaluation of the Argentine peso, we converted Argentine pesos into U.S. dollars at rates approximately 30% to 40% less favorable than the rates at which we translated the financial statements of our subsidiary in Argentina. However, after the December 2015 devaluation of the Argentine peso, the market rates used to convert Argentine pesos into U.S. dollars have been similar to the rates at which we translate the financial statements of our subsidiary in Argentina. See note 10 Supplemental cash flow information for more information.


8


In the first three months of 2016, we recognized $0.1 million in losses from converting Argentine pesos into U.S. dollars. We did not convert any Argentine pesos to dollars in the first three months of 2015. These conversion losses are classified in the income statement as other operating income (expense). At March 31, 2016, we had cash and short term investments denominated in Argentine pesos of $9.7 million.

New Accounting Standards
In May 2014, the FASB issued ASU 2014-09, Revenue From Contracts with Customers, a new standard related to revenue recognition which requires an entity to recognize an amount of revenue to which it expects to be entitled for the transfer of promised goods and services to customers. The new standard will replace most of the existing revenue recognition standards in U.S. GAAP. In August 2015, the FASB issued ASU 2015-14, which defers the effective date of this new standard to January 1, 2018. The new standard can be applied retrospectively to each reporting period presented or retrospectively with the cumulative effect of the change recognized at the date of the initial application in retained earnings. We are assessing the potential impact of this new standard on financial reporting and have not yet selected a transition method.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which will require the recognition of assets and liabilities by lessees for certain leases classified as operating leases under current accounting guidance. The new standard also requires expanded disclosures regarding leasing activities. ASU 2016-02 will be effective January 1, 2019 and we are currently assessing the potential impact of the standard on financial reporting.

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which will simplify how certain features related to share-based payments are accounted for and presented in the financial statements. The new standard is effective January 1, 2017 with early adoption permitted in any interim or annual period. We are assessing the potential impact of this new standard on financial reporting.


9


Note 2 - Segment information

The Brink’s Company offers transportation and logistics management services for cash and valuables throughout the world.  These services include:
•
Cash-in-Transit (“CIT”) Services – armored vehicle transportation of valuables
•
ATM Services – replenishing and maintaining customers’ automated teller machines; providing network infrastructure services
•
Global Services – secure international transportation of valuables
•
Cash Management Services
◦
Currency and coin counting and sorting; deposit preparation and reconciliations; other cash management services
◦
Safe and safe control device installation and servicing (including our patented CompuSafe® service)
◦
Check and cash processing services for banking customers (“Virtual Vault Services”)
◦
Check imaging services for banking customers
•
Payment Services – bill payment and processing services on behalf of utility companies and other billers at any of our Brink’s or Brink’s-operated payment locations in Latin America and Brink’s Money™ general purpose reloadable prepaid cards and payroll cards in the U.S.
•
Guarding Services – protection of airports, offices, and certain other locations in Europe and Brazil with or without electronic surveillance, access control, fire prevention and highly trained patrolling personnel

We identify our operating segments based on how our chief operating decision maker (“CODM”) allocates resources, assesses performance and makes decisions.  Our CODM is our President and Chief Executive Officer.  Our CODM evaluates performance and allocates resources to each operating segment based on operating profit or loss, excluding income and expenses not allocated to segments.

We have nine operating segments:
•
Each of the five countries within Largest 5 Markets (U.S., France, Mexico, Brazil and Canada)
•
Each of the three regions within Global Markets (Latin America, EMEA and Asia)
•
Payment Services

10


The following table summarizes our revenues and operating profit for each of our reportable segments:
 
Revenues
 
Operating Profit
 
Three Months Ended March 31,
 
Three Months Ended March 31,
(In millions)
2016
 
2015
 
2016
 
2015
Reportable Segments:
 
 
 
 
 
 
 
U.S.
$
178.8

 
183.6

 
$
(2.2
)
 
8.3

France
104.8

 
105.7

 
4.5

 
4.1

Mexico
74.9

 
85.7

 
3.2

 
7.9

Brazil
60.0

 
73.8

 
6.1

 
6.1

Canada
35.9

 
38.8

 
1.8

 
1.7

Largest 5 Markets
454.4

 
487.6

 
13.4

 
28.1

Latin America
79.2

 
90.8

 
17.5

 
16.5

EMEA
95.4

 
115.7

 
6.9

 
8.2

Asia
39.0

 
38.7

 
6.4

 
6.5

Global Markets
213.6

 
245.2

 
30.8

 
31.2

Payment Services
20.9

 
22.8

 
—

 
0.5

Total reportable segments
688.9

 
755.6

 
44.2

 
59.8

 
 
 
 
 
 
 
 
Reconciling Items:
 
 
 
 
 
 
 
Corporate expenses:
 
 
 
 
 
 
 
General, administrative and other expenses
—

 
—

 
(17.6
)
 
(17.6
)
Foreign currency transaction gains (losses)
—

 
—

 
1.3

 
(4.8
)
Reconciliation of segment policies to GAAP
—

 
—

 
3.2

 
3.2

Other items not allocated to segments:
 
 
 
 
 
 
 
Venezuela operations
32.1

 
20.5

 
1.8

 
(17.9
)
Reorganization and Restructuring
—

 
—

 
(6.0
)
 
(1.5
)
U.S. and Mexican retirement plans
—

 
—

 
(7.3
)
 
(8.3
)
Acquisitions and dispositions
0.8

 
—

 
(5.8
)
 
—

Total
$
721.8

 
776.1

 
$
13.8

 
12.9


See "Other Items Not Allocated to Segment" on pages 28-29 to the consolidated financial statements for explanations of each of the other items not allocated to segments.


11


Note 3 - Retirement benefits

Pension plans

We have various defined-benefit pension plans covering eligible current and former employees.  Benefits under most plans are based on salary and years of service.

The components of net periodic pension cost for our pension plans were as follows:
 
U.S. Plans
 
Non-U.S. Plans
 
Total
(In millions)
2016
 
2015
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended March 31,
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Service cost
$
—

 
—

 
2.8

 
2.9

 
2.8

 
2.9

Interest cost on projected benefit obligation
9.2

 
9.0

 
3.4

 
3.2

 
12.6

 
12.2

Return on assets – expected
(13.7
)
 
(13.7
)
 
(2.3
)
 
(2.4
)
 
(16.0
)
 
(16.1
)
Amortization of losses
6.1

 
7.8

 
1.2

 
1.3

 
7.3

 
9.1

Settlement loss
—

 
—

 
0.8

 
2.3

 
0.8

 
2.3

Net periodic pension cost
$
1.6

 
3.1

 
5.9

 
7.3

 
7.5

 
10.4

 
 
 
 
 
 
 
 
 
 
 
 
Included in:
 

 
 

 
 

 
 

 
 

 
 

Continuing operations
$
1.6

 
3.1

 
5.9

 
6.2

 
7.5

 
9.3

Discontinued operations
—

 
—

 
—

 
1.1

 
—

 
1.1

Net periodic pension cost
$
1.6

 
3.1

 
5.9

 
7.3

 
7.5

 
10.4

We did not make cash contributions to the primary U.S. pension plan in 2015.  Based on current assumptions, as described in our Annual Report on Form 10-K for the year ended December 31, 2015, we do not expect to make any additional contributions to the primary U.S. pension plan until 2020.

Retirement benefits other than pensions
We provide retirement healthcare benefits for eligible current and former U.S., Canadian, and Brazilian employees.  Retirement benefits related to our former U.S. coal operation include medical benefits provided by the Pittston Coal Group Companies Employee Benefit Plan for UMWA Represented Employees (the “UMWA plans”) as well as costs related to Black Lung obligations.

The components of net periodic postretirement cost related to retirement benefits other than pensions were as follows:
 
UMWA Plans
 
Black Lung and Other Plans
 
Total
(In millions)
2016
 
2015
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended March 31,
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest cost on accumulated postretirement benefit obligations
$
4.6

 
4.5

 
0.6

 
0.7

 
5.2

 
5.2

Return on assets – expected
(4.4
)
 
(5.2
)
 
—

 
—

 
(4.4
)
 
(5.2
)
Amortization of losses
4.3

 
4.3

 
0.5

 
0.7

 
4.8

 
5.0

Amortization of prior service (credit) cost
(1.1
)
 
(1.2
)
 
0.5

 
0.5

 
(0.6
)
 
(0.7
)
Net periodic postretirement cost
$
3.4

 
2.4

 
1.6

 
1.9

 
5.0

 
4.3


12


Note 4 - Income taxes

Three Months Ended March 31,
 
2016
 
2015
Continuing operations
 
 
 
Provision for income taxes (in millions)
$
9.4

 
15.5

Effective tax rate
105.6
%
 
184.5
%

2016 Compared to U.S. Statutory Rate
The effective income tax rate on continuing operations in the first three months of 2016 was greater than the 35% U.S. statutory tax rate primarily due to the significant costs related to the winding down of operations in the Republic of Ireland, for which no tax benefit can be recorded, and the nondeductible expenses resulting from the currency devaluation in Venezuela in the first quarter.
Excluding those items, our effective tax rate on continuing operations in the first three months of 2016 is 54%.  The rate is higher than 35% primarily due to the seasonality of book losses for which no tax benefit can be recorded, nondeductible expenses in Mexico, taxes on undistributed earnings and the characterization of a French business tax as an income tax, partially offset by the geographical mix of earnings.

2015 Compared to U.S. Statutory Rate
The effective income tax rate on continuing operations in the first three months of 2015 was higher than the 35% U.S. statutory tax rate, primarily due to the significant nondeductible expenses resulting from the currency devaluation in Venezuela in the first quarter. 

Excluding the Venezuela nondeductible expenses and the associated tax implications, our effective tax rate on continuing operations in the first three months of 2015 was 54%. The rate was higher than 35% primarily due to higher tax expense resulting from cross border payments, nondeductible expenses in Mexico and the characterization of a French business tax as an income tax, partially offset by lower taxes resulting from the geographical mix of earnings.
 

13


Note 5 - Accumulated other comprehensive income (loss)

Other comprehensive income (loss), including the amounts reclassified from accumulated other comprehensive loss into earnings, was as follows:
 
Amounts Arising During
the Current Period
 
Amounts Reclassified to
Net Income (Loss)
 
 
(In millions)
Pretax
 
Income
Tax
 
Pretax
 
Income
Tax
 
Total Other
Comprehensive
Income (Loss)
Three months ended March 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amounts attributable to Brink's:
 
 
 
 
 
 
 
 
 
Benefit plan adjustments
$
(1.1
)
 
0.3

 
12.3

 
(4.2
)
 
7.3

Foreign currency translation adjustments
17.1

 
—

 
—

 
—

 
17.1

Unrealized gains (losses) on available-for-sale securities
0.2

 
—

 
—

 
—

 
0.2

Gains (losses) on cash flow hedges
(1.0
)
 
0.1

 
0.7

 
—

 
(0.2
)
 
15.2

 
0.4

 
13.0

 
(4.2
)
 
24.4

 
 
 
 
 
 
 
 
 
 
Amounts attributable to noncontrolling interests:
 

 
 

 
 

 
 

 
 

Benefit plan adjustments
—

 
—

 
0.1

 
—

 
0.1

Foreign currency translation adjustments
0.7

 
—

 
—

 
—

 
0.7

 
0.7

 
—

 
0.1

 
—

 
0.8

 
 
 
 
 
 
 
 
 
 
Total
 

 
 

 
 

 
 

 
 

Benefit plan adjustments(a)
(1.1
)
 
0.3

 
12.4

 
(4.2
)
 
7.4

Foreign currency translation adjustments
17.8

 
—

 
—

 
—

 
17.8

Unrealized gains (losses) on available-for-sale securities(b)
0.2

 
—

 
—

 
—

 
0.2

Gains (losses) on cash flow hedges(c)
(1.0
)
 
0.1

 
0.7

 
—

 
(0.2
)
 
$
15.9

 
0.4

 
13.1

 
(4.2
)
 
25.2

 
 
 
 
 
 
 
 
 
 
Three months ended March 31, 2015
 

 
 

 
 

 
 

 
 

 
 
 
 
 
 
 
 
 
 
Amounts attributable to Brink's:
 

 
 

 
 

 
 

 
 

Benefit plan adjustments
$
(4.6
)
 
1.2

 
15.7

 
(5.2
)
 
7.1

Foreign currency translation adjustments
(48.9
)
 
—

 
—

 
—

 
(48.9
)
Gains (losses) on cash flow hedges
2.1

 
—

 
(2.1
)
 
—

 
—

 
(51.4
)
 
1.2

 
13.6

 
(5.2
)
 
(41.8
)
 
 
 
 
 
 
 
 
 
 
Amounts attributable to noncontrolling interests:
 

 
 

 
 

 
 

 
 

Benefit plan adjustments
—

 
—

 
0.1

 
—

 
0.1

Foreign currency translation adjustments
(1.5
)
 
—

 
—

 
—

 
(1.5
)
 
(1.5
)
 
—

 
0.1

 
—

 
(1.4
)
 
 
 
 
 
 
 
 
 
 
Total
 

 
 

 
 

 
 

 
 

Benefit plan adjustments(a)
(4.6
)
 
1.2

 
15.8

 
(5.2
)
 
7.2

Foreign currency translation adjustments
(50.4
)
 
—

 
—

 
—

 
(50.4
)
Gains (losses) on cash flow hedges(c)
2.1

 
—

 
(2.1
)
 
—

 
—

 
$
(52.9
)
 
1.2

 
13.7

 
(5.2
)
 
(43.2
)
(a)
The amortization of prior experience losses and prior service cost is part of total net periodic retirement benefit cost when reclassified to net income.  Net periodic retirement benefit cost also includes service costs, interest costs, expected returns on assets, and settlement costs.  The total pretax expense is allocated between cost of revenues and selling, general and administrative expenses on a plan-by-plan basis:
 
Three Months Ended March 31,
(In millions)
2016
 
2015
Total net periodic retirement benefit cost included in:
 
 
 
Cost of revenues
$
10.4

 
9.9

Selling, general and administrative expenses
2.1

 
3.7


(b)
Gains and losses on sales of available-for-sale securities are reclassified from accumulated other comprehensive loss to the income statement when the gains or losses are realized.  Pretax amounts are classified in the income statement as interest and other income (expense).
(c)
Pretax gains and losses on cash flow hedges are classified in the income statement as:
•
other operating income (expense) ($0.6 million of losses in the three months ended March 31, 2016 and $2.3 million of gains in the three months ended March 31, 2015)
•
interest and other income (expense) ($0.1 million of losses in the three months ended March 31, 2016 and $0.2 million of losses in the three months ended March 31, 2015).

14



The changes in accumulated other comprehensive loss attributable to Brink’s are as follows:

(In millions)
Benefit Plan Adjustments
 
Foreign Currency Translation Adjustments
 
Unrealized Gains (Losses) on Available-for-Sale Securities
 
Gains (Losses) on Cash Flow Hedges
 
Total
 
 
 
 
 
 
 
 
 
 
Balance as of December 31, 2015
$
(570.5
)
 
(322.6
)
 
1.1

 
0.1

 
(891.9
)
Other comprehensive income (loss) before reclassifications
(0.8
)
 
17.1

 
0.2

 
(0.9
)
 
15.6

Amounts reclassified from accumulated other comprehensive loss
8.1

 
—

 
—

 
0.7

 
8.8

Other comprehensive income (loss) attributable to Brink's
7.3

 
17.1

 
0.2

 
(0.2
)
 
24.4

Balance as of March 31, 2016
$
(563.2
)
 
(305.5
)
 
1.3

 
(0.1
)
 
(867.5
)


Note 6 - Fair value of financial instruments

Fixed-Rate Debt
The fair value and carrying value of our fixed-rate debt are as follows:
(In millions)
March 31, 2016
 
December 31, 2015
 
 
 
 
Unsecured notes issued in a private placement
 
 
 
Carrying value
$
85.7

 
92.9

Fair value
88.5

 
95.7


The fair value estimate of our unsecured private-placement notes is based on the present value of future cash flows, discounted at rates for similar instruments at the respective measurement dates, which we have categorized as a Level 3 valuation.

There were no transfers in or out of any of the levels of the valuation hierarchy in the first three months of 2016.

Other Financial Instruments
Other financial instruments include cash and cash equivalents, accounts receivable, floating rate debt, accounts payable and accrued liabilities.  The financial statement carrying amounts of these items approximate the fair value.

We have outstanding foreign currency forward and swap contracts to hedge transactional risks associated with foreign currencies.  At March 31, 2016, the notional value of our shorter term outstanding foreign currency forward and swap contracts was $54.6 million and generally have average maturities of approximately one month.  These shorter term foreign currency forward and swap contracts primarily offset exposures in the British pound, the euro and the Mexican peso and are not designated as hedges for accounting purposes. The fair values of these currency contracts are determined using Level 2 valuation techniques and are based on the present value of net future cash payments and receipts.  At March 31, 2016, the fair value of these shorter term foreign currency contracts was not significant.

In 2013, we entered into a longer term cross-currency swap to hedge against the change in value of a long-term intercompany loan denominated in Brazilian real.  This longer term contract is designated as a cash flow hedge for accounting purposes. At March 31, 2016, the notional value of this contract was $12.7 million with a weighted average maturity of 1.0 year. The fair value of the cross-currency swap is determined using Level 2 valuation techniques and is based on the present value of net future cash payments and receipts.  At March 31, 2016, the fair value of this longer term contract was a net asset of $5.7 million, of which $2.6 million is included in prepaid expenses and other and $3.1 million is included in other assets on the consolidated balances sheet.  

We entered into an interest rate swap contract in the first quarter of 2016 to hedge cash flow risk associated with changes in variable interest rates. The fair value of this interest rate swap at March 31, 2016 was a net liability of $0.4 million.

There were no transfers in or out of any of the levels of the valuation hierarchy in the first three months of 2016.


15


Note 7 - Share-based compensation plans

We have share-based compensation plans to retain employees and nonemployee directors and to more closely align their interests with those of our shareholders.

We have granted share-based awards to employees under the 2005 Equity Incentive Plan and the 2013 Equity Incentive Plan.  These plans permit grants of restricted stock, restricted stock units, performance stock, performance units, stock appreciation rights, stock options, as well as other share-based awards to eligible employees.  The 2013 Plan also permits cash awards to eligible employees.  The 2005 Plan was replaced by the 2013 Plan effective in February 2013.  No further grants of awards will be made under the 2005 Plan.

We have granted deferred stock units to directors through the Non-Employee Directors’ Equity Plan.  Share-based awards were granted to directors and remain outstanding under the Non-Employee Directors’ Stock Option Plan and the Directors’ Stock Accumulation Plan, both of which have expired.

Outstanding awards at March 31, 2016 include performance share units, market share units, restricted stock units, deferred stock units and stock options.

Compensation Expense
Compensation expense is measured using the fair-value-based method.  For employee and director awards considered equity grants, compensation expense is recognized from the grant date to the earlier of the retirement-eligible date or the vesting date.

In February 2016, the Compensation and Benefits Committee of the Board of Directors modified the terms of performance share units originally awarded or granted in 2013, 2014 and 2015 to reflect the impact of removing Venezuela operations from the Company’s segment results beginning in 2015. For each of the affected performance share units, consolidated results for 2015 and each subsequent year within the respective performance period was or will be adjusted to reflect Venezuela results at the amount originally projected in the applicable performance target. No incremental compensation cost associated with the modification is expected to be recognized as the modified goal is expected to be more difficult to achieve and, in accordance with FASB ASC Topic 718, Compensation - Stock Compensation, we continue to recognize expense as calculated using the original performance goal.

Compensation expense are classified as selling, general and administrative expenses in the consolidated statements of operations. Compensation expenses for the share-based awards were as follows:
 
Compensation Expense
 
Three Months Ended March 31,
(in millions)
2016
 
2015
 
 
 
 
Performance Share Units
$
1.3

 
2.5

Market Share Units
0.2

 
1.6

Restricted Stock Units
1.1

 
1.0

Deferred Stock Units
0.2

 
0.1

Share-based payment expense
2.8

 
5.2

Income tax benefit
(1.0
)
 
(1.8
)
Share-based payment expense, net of tax
$
1.8

 
3.4

Restricted Stock Units (“RSUs”)
We measure the fair value of RSUs based on the price of Brink’s stock at the grant date, adjusted for a discount for dividends not received or accrued during the vesting period.

The following table summarizes RSU activity during the first three months of 2016: 
 
Shares
(in thousands)
 
Weighted-Average Grant-Date Fair Value
Nonvested balance as of December 31, 2015
273.0

 
$
26.16

Granted
130.2

 
28.38

Forfeited
(8.8
)
 
25.42

Vested
(60.1
)
 
26.46

Nonvested balance as of March 31, 2016
334.3

 
$
26.99


16


Performance Share Units ("PSUs”)
In 2016, we granted Internal Metric PSUs ("IM PSUs") as well as Total Shareholder Return PSUs ("TSR PSUs").
 
IM PSUs contain solely a performance condition. We measure the fair value of these PSUs based on the price of Brink’s stock at the grant date, adjusted for a discount for dividends not received or accrued during the vesting period. For the IM PSUs granted in 2016, the performance period is from January 1, 2016 to December 31, 2017, with an additional year of service required.

TSR PSUs contain solely a market condition. We measure the fair value of these PSUs at the grant date using a Monte Carlo simulation model.  The following table provides the terms and the weighted average assumptions used in the valuation of the TSR PSUs:

Terms and Assumptions Used to Estimate Fair Value of TSR PSUs
TSR PSUs Granted in the
First Three Months of 2016
Date of Measurement
February 24, 2016(a)
 
 
Terms of awards:
 
Performance period
Jan. 1, 2016 to
 
Dec. 31, 2018
Beginning average price of Brink’s common stock
$
29.79

 
 

Assumptions used to estimate fair value:
 

Expected dividend yield(b)
0
%
Expected stock price volatility
29
%
Risk-free interest rate
0.9
%
Contractual term in years
2.9

 
 

Weighted-average fair value estimate per share
$
33.58

(a)
Represents the accounting grant date that awards granted to employee.
(b)
TSR PSUs are not entitled to dividends during the performance period.


The following table summarizes all PSU activity during the first three months of 2016:
 
Shares
(in thousands)
 
Weighted-Average Grant-Date Fair Value
Nonvested balance as of December 31, 2015
503.4

 
$
25.93

Granted
166.5

 
29.22

Forfeited
(9.4
)
 
27.19

Vested(a)
(162.9
)
 
23.73

Nonvested balance as of March 31, 2016
497.6

 
$
27.73

(a)
The vested PSUs presented are based on the target amount of the award. Pursuant to the actual performance for the period ended December 31, 2015, the actual shares earned and distributed were 277.1, representing 171% of target or, for a smaller award, 125% of target.
Market Share Units ("MSUs”)
The following table summarizes all MSU activity during the first three months of 2016: 
 
Shares
(in thousands)
 
Weighted-Average Grant-Date Fair Value
Nonvested balance as of December 31, 2015
258.8

 
$
27.40

Granted
—

 
—

Forfeited
—

 
—

Vested(a)
(84.3
)
 
27.30

Nonvested balance as of March 31, 2016
174.5

 
$
27.45

(a)
The vested MSUs presented are based on the target amount of the award. Pursuant to the actual performance for the period ended December 31, 2015, the actual shares earned and distributed were 91.1, or 108% of target. No additional compensation expense was required, as the market condition was included in the $27.30 grant date fair value.
Deferred Stock Units ("DSUs")
We measure the fair value of DSUs at the grant date, based on the price of Brink's stock.

In 2015, our independent directors received grants of DSUs that vest and will be paid out in shares of Brink's stock on the first anniversary of the grant date, provided that the director has not elected to defer the distribution of shares until a later date. DSUs are forfeited if a director leaves before the vesting date. However, in connection with the retirement of two directors in January 2016, our board of directors waived the

17


one-year vesting provision for those DSUs granted in 2015. The impact of this modification was recorded in the first quarter of 2016 and was not significant.

DSUs granted prior to 2015, in general, will be paid out in shares of stock following separation from service.

The following table summarizes all DSU activity during the first three months of 2016:
 
Shares
(in thousands)
 
Weighted-Average Grant-Date Fair Value
Nonvested balance as of December 31, 2015
21.4

 
$
32.79

Granted
—

 
—

Forfeited
—

 
—

Vested
(6.1
)
 
29.05

Nonvested balance as of March 31, 2016
15.3

 
$
32.79



Note 8 - Shares used to calculate earnings per share
 
Three Months 
 Ended March 31,
(In millions)
2016
 
2015
 
 
 
 
Weighted-average shares:
 
 
 
Basic(a)
49.5

 
49.1

Effect of dilutive stock awards and options
—

 
—

Diluted
49.5

 
49.1

 
 
 
 
Antidilutive stock awards and options excluded from denominator
1.5

 
1.4


(a)
We have deferred compensation plans for directors and certain of our employees.  For participants electing to defer compensation into common stock units, amounts owed to participants will be paid out in shares of Brink's common stock.  Each unit represents one share of common stock.  The number of shares used to calculate basic earnings per share includes the weighted-average units credited to employees and directors under the deferred compensation plans.  Accordingly, included in basic shares are 0.5 million in the three months ended March 31, 2016, and 0.5 million in the three months ended March 31, 2015.

18


Note 9 - Loss from discontinued operations

 
Three Months 
 Ended March 31,
(In millions)
2016
 
2015
Loss from operations(a)(b)
$
—

 
(2.4
)
Loss on sale(a)
—

 
(0.7
)
Adjustments to contingencies of former operations(c):
 

 
 

Other
—

 
(0.1
)
Loss from discontinued operations before income taxes
—

 
(3.2
)
Provision (benefit) for income taxes
—

 
(0.8
)
Loss from discontinued operations, net of tax
$
—

 
(2.4
)

(a)
Discontinued operations include gains and losses related to businesses that we recently sold.  No interest expense was included in discontinued operations in the first three months of 2015.
(b)
The loss from operations in the first three months of 2015 included $1.0 million in pension settlement charges related to the Mexican parcel delivery service sold in February 2015.
(c)
Primarily related to former businesses previously exited.

Operations sold classified as discontinued operations:
•
In February 2015, we sold a small Mexican parcel delivery business which met the criteria for classification as a discontinued operation as of December 31, 2014.

Other divestitures not classified as discontinued operations:
•
We sold an Irish guarding operation in November 2015.
•
We sold our 70% ownership interest in a Russian cash management business in November 2015 and recognized a $5.9 million loss on the disposition in the fourth quarter of 2015. A significant part of the loss ($5.0 million) represented the reclassification of foreign currency adjustments from accumulated other comprehensive loss into earnings.

Revenues and income (loss) from operations before tax were not significant for the Irish guarding business or the Russian cash management business.

Note 10 - Supplemental cash flow information
 
Three Months 
 Ended March 31,
(In millions)
2016
 
2015
Cash paid for:
 
 
 
Interest
$
5.6

 
5.6

Income taxes, net
14.4

 
11.4


Argentina Debt Security Transactions
We have elected in the past and could continue in the future to repatriate cash from Brink’s Argentina using different means to convert Argentine pesos into U.S. dollars. In the first three months of 2016, cash outflows from the purchase of debt securities totaled $2.1 million and cash inflows from the sale of these securities totaled $2.0 million. In the first three months of 2015, we did not convert any Argentine pesos to U.S. dollars using these debt security transactions. The net cash flows from these transactions are treated as operating cash flows as the debt securities are purchased specifically for resale and are generally sold within a short period of time from the date of purchase.

Non-cash Investing and Financing Activities
We acquired $3.9 million in armored vehicles and other equipment under capital lease arrangements in the first three months of 2016 compared to $1.1 million in armored vehicles and point of sale equipment acquired under capital lease arrangements in the first three months of 2015.


19


Note 11 - Contingent matters

On June 19, 2008, a lawsuit captioned Del Valle Gurria S.C. v. Servicio Pan Americano de Protección, S.A. de C.V. was filed with the Twenty-third Civil Judge in the Federal District in Mexico (the “Court”) against Servicio Pan American de Proteccion, S.A. de C.V. (SERPAPROSA), the Mexico subsidiary that we acquired in November 2010. The plaintiff claims it is owed legal fees and corresponding value-added tax (VAT), interest and expenses related to its legal representation of SERPAPROSA in connection with tax audits covering the 1991, 1992 and 1994 fiscal years.  On October 28, 2010, the Court issued a decision in favor of SERPAPROSA in part and the plaintiff in part, ordering SERPAPROSA to pay the plaintiff less than $1 million for its previous representation of SERPAPROSA. Between November 2010 and October 2013, the judgment was subject to multiple appeals by both parties to the Fifth Civil Court of Appeal of the Federal District in Mexico (the “Fifth Civil Court of Appeal”) and to the First Civil Collegiate Tribunal of the First Circuit in Mexico (the “First Civil Collegiate Tribunal”), and was remanded twice to the Court for determination of the fees to be paid to the plaintiff. On December 6, 2013, the Fifth Civil Court of Appeal issued a decision in favor of the plaintiff, modifying the lower court’s ruling and ordering SERPAPROSA to pay the plaintiff approximately $7 million plus VAT and interest for its previous representation of SERPAPROSA. SERPAPROSA filed a constitutional injunction on January 20, 2014 with the First Civil Collegiate Tribunal. The appeal was granted in favor of SERPAPROSA on September 17, 2014, ordering SERPAPROSA to pay approximately $2 million plus VAT and interest. The plaintiff filed an appeal on October 7, 2014, with the Mexico Supreme Court, which was rejected by the court on October 22, 2014. The plaintiff filed two subsequent actions appealing the Supreme Court’s October 22, 2014 decision, one before the First Appellate Court in Civil Matters of the First Circuit (the “Appellate Court”) and one with the Mexico Supreme Court. The action filed before the Appellate Court was rejected on February 16, 2015; the action filed with the Mexico Supreme Court is pending. The Company has accrued $2 million, reflecting the Company’s best estimate of exposure, although additional reasonably possible losses could be up to $10 million, based on currency exchange rates at March 31, 2016. The ultimate resolution of this matter is unknown and the estimated liability may change in the future. The Company denies the allegations asserted by the plaintiff and is vigorously defending itself in this matter.

During the fourth quarter of 2015, we became aware of an investigation initiated by COFECE (the Mexican antitrust agency) related to potential anti-competitive practices among competitors in the cash logistics industry in Mexico (the industry in which Brink’s Mexican subsidiary, SERPAPROSA, is active). Because no legal proceedings have been initiated against SERPAPROSA, we cannot estimate the probability of loss or any range of estimate of possible loss at this time. It is possible that SERPAPROSA could become the subject of legal or administrative claims or proceedings, however, that could result in a loss that could be material to the Company’s results in a future period.

In addition, we are involved in various other lawsuits and claims in the ordinary course of business. We are not able to estimate the loss or range of losses for some of these matters. We have recorded accruals for losses that are considered probable and reasonably estimable. Except as otherwise noted, we do not believe that the ultimate disposition of any of the lawsuits currently pending against the Company should have a material adverse effect on our liquidity, financial position or results of operations.


20


Note 12 - Reorganization and Restructuring

2015 Reorganization and Restructuring
Brink's initiated a global restructuring of its business in the third quarter of 2015 and recognized $11.6 million in related 2015 costs. We recognized an additional $2.8 million in costs in the first quarter of 2016 related to employee severance and contract terminations associated with the restructuring. The 2015 Reorganization and Restructuring is expected to reduce the global workforce by approximately 1,200 to 1,300 positions and is projected to result in $20 to $30 million in 2016 cost savings.

The following table summarizes the costs incurred and payments and utilization of our 2015 Reorganization and Restructuring accruals:
(In millions)
Severance Costs
 
Contract Terminations
 
Total
Balance as of January 1, 2016
$
6.3

 
—

 
6.3

Expense
2.6

 
0.2

 
2.8

Payments and utilization
(3.0
)
 
—

 
(3.0
)
Foreign currency exchange effects
—

 
—

 
—

Balance as of March 31, 2016
$
5.9

 
0.2

 
6.1


Executive Leadership and Board of Directors Restructuring
In the fourth quarter of 2015, we recognized $1.8 million in costs related to the restructuring of executive leadership and Board of Directors,
which was announced in January 2016. We also recognized an additional $3.2 million in charges, primarily severance costs, in the first quarter of 2016. At March 31, 2016, $4.3 million was recorded in accrued liabilities related to these restructuring actions, which include the departure of our CEO in 2016 and the retirement of two Board members in January 2016.

2014 Reorganization and Restructuring
In the fourth quarter of 2014, we announced a reorganization and restructuring of Brink’s global organization to accelerate the execution of our strategy by reducing costs and providing for a more streamlined and centralized organization. As part of this program, we reduced our total workforce by approximately 1,700 positions. The restructuring saved annual direct costs of approximately $50 million in 2015 compared to 2014, excluding charges for severance, lease termination and accelerated depreciation. We recorded total pretax charges of $21.8 million in 2014 and an additional $1.5 million of pretax charges in the first three months of 2015 related to the 2014 Reorganization and Restructuring. The actions under this program were substantially completed by the end of 2015 with cumulative pretax charges of approximately $24 million, primarily severance costs.

We expect to recognize an additional $2 to $4 million in costs in 2016 related to the 2015 Reorganization and Restructuring and the
Executive Leadership and Board of Directors Restructuring.




21


THE BRINK’S COMPANY
and subsidiaries

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Brink’s Company offers transportation and logistics management services for cash and valuables throughout the world.  These services include:
•
Cash-in-Transit (“CIT”) Services – armored vehicle transportation of valuables
•
ATM Services – replenishing and maintaining customers’ automated teller machines; providing network infrastructure services
•
Global Services – secure international transportation of valuables
•
Cash Management Services
◦
Currency and coin counting and sorting; deposit preparation and reconciliations; other cash management services
◦
Safe and safe control device installation and servicing (including our patented CompuSafe® service)
◦
Check and cash processing services for banking customers (“Virtual Vault Services”)
◦
Check imaging services for banking customers
•
Payment Services – bill payment and processing services on behalf of utility companies and other billers at any of our Brink’s or Brink’s-operated  payment locations in Latin America and Brink’s Money™ general purpose reloadable prepaid cards and payroll cards in the U.S.
•
Guarding Services – protection of airports, offices, and certain other locations in Europe and Brazil with or without electronic surveillance, access control, fire prevention and highly trained patrolling personnel

We identify our operating segments based on how our chief operating decision maker (“CODM”) allocates resources, assesses performance and makes decisions.  Our CODM is our President and Chief Executive Officer.  Our CODM evaluates performance and allocates resources to each operating segment based on operating profit or loss, excluding income and expenses not allocated to segments.

We have nine operating segments:
•
Each of the five countries within Largest 5 Markets (U.S., France, Mexico, Brazil and Canada)
•
Each of the three regions within Global Markets (Latin America, EMEA and Asia)
•
Payment Services

We believe that Brink’s has significant competitive advantages including:
•
track record of refining our business portfolio to deliver shareholder value
•
medium-term growth drivers from high-value services
•
global footprint in a world with increasing security needs
•
brand name recognition
•
reputation for a high level of service and security
•
risk management and logistics expertise
•
proven operational excellence
•
high-quality insurance coverage and general financial strength.


22


RESULTS OF OPERATIONS

Consolidated Review

Non-GAAP Financial Measures
We provide an analysis of our operations below on both a generally accepted accounting principles (“GAAP”) and non-GAAP basis.  The purpose of the non-GAAP information is to report our operating profit, income from continuing operations and earnings per share without certain income and expense items and to reflect a constant tax rate for quarterly results equal to the full-year non-GAAP tax rate.  The non-GAAP financial measures are intended to provide information to assist comparability and estimates of future performance.  The Non-GAAP adjustments used to reconcile our GAAP results are described on pages 34–35.

Definition of Organic Growth
Organic growth represents the change in revenues or operating profit between the current and prior period, excluding the effect of acquisitions and dispositions, changes in currency exchange rates (as described on page 26) and the accounting effects of reporting Venezuela under highly inflationary accounting.

 
Three Months 
 Ended March 31,
 
%
(In millions, except for per share amounts)
2016
 
2015
 
Change
GAAP
 
 
 
 
 
Revenues
721.8

 
776.1

 
(7
)
Cost of revenues
597.0

 
629.1

 
(5
)
Selling, general and administrative expenses
110.3

 
112.3

 
(2
)
Operating profit
13.8

 
12.9

 
7

Loss from continuing operations(a)
(3.1
)
 
(0.6
)
 
unfav

Diluted EPS from continuing operations(a)
(0.06
)
 
(0.01
)
 
unfav

 
 
 
 
 
 
Non-GAAP(b)
 
 
 
 
 
Non-GAAP revenues
688.9

 
755.6

 
(9
)
Non-GAAP operating profit
31.1

 
40.6

 
(23
)
Non-GAAP income from continuing operations(a)
14.9

 
21.9

 
(32
)
Non-GAAP diluted EPS from continuing operations(a)
0.30

 
0.44

 
(32
)

(a)
Amounts reported in this table are attributable to the shareholders of Brink’s and exclude earnings related to noncontrolling interests.
(b)
Non-GAAP results are reconciled to the applicable GAAP results on pages 34–35.


GAAP Basis
Analysis of Consolidated Results: First Quarter 2016 versus First Quarter 2015
Consolidated Revenues  Revenues decreased $54.3 million or 7% due to unfavorable changes in currency exchange rates ($131.8 million) and an organic decrease in EMEA ($9.3 million), partially offset by organic growth in Venezuela ($59.1 million) and Latin America ($17.6 million).  A significant portion of the reduction in revenues from currency exchange rates relates to a devaluation of the Venezuelan bolivar in February 2015.  The U.S. dollar also strengthened against the Brazilian real, Mexican peso and most currencies in Latin America.  Revenues increased 11% on an organic basis due mainly to higher average selling prices in Venezuela and Latin America (including the effects of inflation).

Consolidated Costs and Expenses Cost of revenues decreased 5% to $597.0 million as higher labor costs from inflation-based wage increases were more than offset by changes in currency rates, including devaluation in Venezuela.  Selling, general and administrative costs decreased 2% to $110.3 million due primarily to changes in currency exchange rates, including devaluation in Venezuela, partially offset by increased wages and severance.

Consolidated Operating Profit Operating profit increased $0.9 million due mainly to:
•
a lower remeasurement loss of net monetary assets ($15.2 million) as a result of the devaluation of the Venezuelan currency (an $18.0 million charge in 2015 compared to a $2.8 million charge in 2016) and
•
an organic increase in Venezuela ($22.3 million) and Latin America ($8.6 million),
partially offset by:
•
unfavorable changes in currency exchange rates ($22.1 million), excluding the effects of Venezuela devaluations,
•
organic decreases in the U.S. ($10.5 million) and Mexico ($4.0 million) and
•
costs recorded in association with the planned exit of operations in Ireland ($5.9 million).

Consolidated Loss from Continuing Operations Attributable to Brink’s and Related Per Share Amounts  Loss from continuing operations attributable to Brink’s shareholders in 2016 increased $2.5 million to $3.1 million primarily due to higher income attributable to noncontrolling interests ($9.1 million), partially offset by the operating profit increase mentioned above and lower income tax expense ($6.1 million).  Earnings per share from continuing operations was negative $0.06, down from negative $0.01 in 2015.

23


Non-GAAP Basis
Analysis of Consolidated Results: First Quarter 2016 versus First Quarter 2015
Non-GAAP Consolidated Revenues   Non-GAAP revenues decreased $66.7 million or 9% due to unfavorable changes in currency exchange rates ($84.3 million) and an organic decrease in EMEA ($9.3 million), partially offset by organic growth in Latin America ($17.6 million).  The reduction in non-GAAP revenues from currency exchange rates relates to a strengthening of the U.S. dollar against Brazilian real and Mexican peso and most currencies in Latin America.  Non-GAAP revenues increased 3% on an organic basis due mainly to higher average selling prices in Latin America (including the effects of inflation).  See page 23 for our definition of “organic.”

Non-GAAP Consolidated Operating Profit Non-GAAP operating profit decreased $9.5 million in 2016 primarily due to:
•
organic decreases in the U.S. ($10.5 million) and Mexico ($4.0 million) and
•
unfavorable changes in currency exchange rates ($5.0 million),
•
partially offset by an organic increase in Latin America ($8.6 million).

Non-GAAP Consolidated Income from Continuing Operations Attributable to Brink’s and Related Per Share Amounts  Non-GAAP income from continuing operations attributable to Brink’s shareholders in 2016 decreased $7.0 million to $14.9 million primarily due to the non-GAAP operating profit decrease mentioned above, partially offset by the corresponding lower non-GAAP tax expense ($3.2 million).  Non-GAAP earnings per share from continuing operations was $0.30, down from $0.44 in 2015.


24



Outlook

Outlook for 2016
Our organic revenue growth rate for 2016 compared to our 2015 Non-GAAP results is expected to be approximately 5% or $150 million, and our estimate of the negative impact of changes in currency exchange rates on revenues is approximately 8% or $227 million.  Our operating profit margin on a Non-GAAP basis is expected to be approximately 7.0%.  Operating profit margin in the U.S. is expected to be 2% to 3%. Operating profit margin in Mexico is expected to be approximately 10%.
 
2015
GAAP
 
2015
Non-GAAP(a)
 
2016
Non-GAAP
Outlook(a)
 
% Change
Revenues
$
3,061

 
2,977

 
~2,900

 
 
Operating profit (loss)
57

 
157

 
190 – 210

 
 
Nonoperating expense
(16
)
 
(15
)
 
(16)

 
 
Provision for income taxes
(67
)
 
(52
)
 
(68) – (76)

 
 
Noncontrolling interests
16

 
(5
)
 
(5) – (7)

 
 
Income (loss) from continuing operations attributable to Brink's
(9
)
 
84

 
101 – 111

 
 
EPS from continuing operations attributable to Brink's
$
(0.19
)
 
1.69

 
2.00 – 2.20

 
 
 
 
 
 
 
 
 
 
Key Metrics
 
 
 
 
 
 
 
Revenues Change
 
 
 
 
 
 
 
Organic
 
 
 
 
150

 
5%
Currency
 
 
 
 
(227
)
 
(8%)
Total
 
 
 
 
(77
)
 
(3%)
 
 
 
 
 
 
 
 
Operating profit margin
1.8
%
 
5.3
%
 
~7%

 
 
 
 
 
 
 
 
 
 
Effective income tax rate
161.8
%
 
37.0
%
 
39.0
%
 
 
 
 
 
 
 
 
 
 
Fixed assets acquired(b)
 
 
 
 
 
 
 
Capital expenditures
$
101

 
97

 
100 – 110

 
 
Capital leases(c)
19

 
19

 
20

 
 
Total
$
120

 
116

 
120 – 130

 
 
 
 
 
 
 
 
 
 
Depreciation and amortization of fixed assets(b)
$
136

 
132

 
120 – 130

 
 
Amounts may not add due to rounding

(a)
See pages 34 and 35 for information about reconciliations to GAAP.
(b)
2015 non-GAAP amounts exclude Venezuela capital expenditures of $4.3 million and Venezuela depreciation and amortization of fixed assets of $3.9 million. Depreciation and amortization of fixed assets does not include intangible asset amortization.
(c)
Includes capital leases for newly acquired assets only.


25


Revenues and Operating Profit by Segment: First Quarter 2016 versus First Quarter 2015
 
 
 
Organic
 
Acquisitions /
 
 
 
 
 
% Change
 
1Q'15
 
Change
 
Dispositions(a)
 
Currency(b)
 
1Q'16
 
Total
 
Organic
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S.
$
183.6

 
(4.8
)
 
—

 
—

 
178.8

 
(3
)
 
(3
)
France
105.7

 
1.3

 
—

 
(2.2
)
 
104.8

 
(1
)
 
1

Mexico
85.7

 
4.6

 
—

 
(15.4
)
 
74.9

 
(13
)
 
5

Brazil
73.8

 
8.5

 
—

 
(22.3
)
 
60.0

 
(19
)
 
12

Canada
38.8

 
1.0

 
—

 
(3.9
)
 
35.9

 
(7
)
 
3

Largest 5 Markets
487.6

 
10.6

 
—

 
(43.8
)
 
454.4

 
(7
)
 
2

Latin America
90.8

 
17.6

 
—

 
(29.2
)
 
79.2

 
(13
)
 
19